California Approves Lithium Tax Despite Industry Warnings | Investment News

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(Reuters) – California on Thursday approved a plan to tax lithium metal from electric vehicle batteries to generate revenue for environmental cleanup projects despite industry concerns that it will hurt the sector and delay deliveries to automakers.

Governor Gavin Newsom, a Democrat, on Thursday approved the tax as part of a must-have state budget. The state Legislature had approved the levy during deliberations Wednesday night.

The tax is structured as a flat rate per tonne and will come into effect in January. The tax will be reviewed annually, and state officials have agreed to study the possibility of moving to a percentage-based tax.

The largest US state sits atop giant lithium reserves in its Salton Sea region east of Los Angles, an area heavily damaged in the 20th century by years of heavy pesticide use in the agriculture. The funds generated by the tax are partly allocated to the cleaning of the area.

Federal officials have praised the region’s start-up lithium industry for deploying a geothermal brine process that’s more environmentally friendly than surface mining and brine evaporation ponds, the two most common existing methods for producing lithium.

Two of the region’s three lithium companies have warned that the tax will scare off investors and customers. The two said they could leave the state for lithium-rich brine deposits in Utah or Arkansas.

Privately held Controlled Thermal Resources Ltd said the tax would force it to miss lithium delivery deadlines to General Motors Co by 2024 and Stellantis NV by 2025.

EnergySource Minerals LLC, also a private company, said it halted talks with potential financiers and an automaker.

“Supporting a tax that ensures lithium imports from China are cheaper for automakers to secure will devastate this promising California industry before it has started,” said Rod Colwell, chief executive of Controlled Thermal.

(Reporting by Ernest Scheyder; Editing by Michael Perry)

Copyright 2022 Thomson Reuters.

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